Jeff Sue
The mobile gaming economy has been in a state of flux for the past couple of years, and it has become quite difficult to predict what will come next. China has had its own set of unique issues, mainly stemming from the nation’s desire to rein in the market and provide more security and privacy to all parties.
Despite this, the Chinese mobile economy has continued to thrive over the past 18 months. Last year was a big one for China’s mobile scene as mobile app publishers found new audiences and explored new mobile advertising channels, many of which are here to stay — 681.7 million mobile gamers were reported in China in 2020. To add to this, the country also leads the way for gross revenue, accounting for over 35% of mobile gaming revenue worldwide in 2020.
Western publishers have taken note, but recent regulatory crackdowns have given pause to some. What can be done to quell some of these concerns and help open the market to global gaming publishers?
China’s top developers are going global
It can be argued that Chinese tech giants like Tencent and Netease have actually seen these restrictions as an eventuality and have acted accordingly by investing and acquiring global studios. Tencent alone has invested in over 30 gaming companies, including Roblox, Supercell, Riot and Voodoo.
Chinese publishers that employed a global strategy increased their revenue by 36.7% in 2020 and are seeing more revenue in international markets than in China. Some of this is fueled by publishers pivoting away from ISBN-restricted games with in-app purchases (IAP) to fan-friendly free-to-play (F2P) games with well-executed ad monetization models.
Given that mobile gaming giants such as Zynga and Scopely hold a winning formula for gaming IP as well as ample resources, there is an opening in the market for cross-platform growth. To be clear, it is an ambitious goal, but could be seen as a necessity to sustain user and revenue growth.
What Western publishers are learning from China
Publishers wanting to go East are seeing the success of Chinese studios capitalizing on intellectual property (IP) such as Journey to the West in their domestic markets. Zynga has taken notice of this and is making wise investments into the market with IP titles from Harry Potter and an upcoming Star Wars mobile game.
Kabam’s Marvel IP has also been successful, with its F2P game Contest of Champions tops the U.S. charts for licensed action mobile games. Subsequently, Kabam partnered with Netease and localized the game for the Chinese market.
In addition, companies like Zynga have also been quite successful in scaling their IAP titles and have routinely obtained the International Standard Book Number (ISBN) needed to distribute games in China. Zynga also recently announced that its popular puzzle game, Merge Dragons, will be hitting the Chinese market soon.
While tightening restrictions and adhering to strict compliance guidelines can seem daunting for Western publishers, there will continue to be an influx of both AAA and indie studios. Collaborating with a local partner can make the process more viable, as we’ve recently seen with Tilting Point’s partnership with Tencent-backed streaming platform, Huya. Partnering in China can reduce friction and the time it will take to get approved for the myriad app stores.
Strong growth despite recent crackdowns
At the same time, stricter approval processes for domestic games put in place to restrict minors from excessive gaming and more rigorous compliance around ISBN requirements also had an impact on the market. These moves have been seen as a way to clean up the market.
Despite the perceived upheaval in the market, Niko Partners projects strong growth in both revenue and users, indicating the restrictions on minors do not affect businesses as much as the headlines might imply. Tencent, for example, recently reported that users who were younger than 16 accounted for just 2.6% of its gross revenue in China.
With all of this, the number of games that received Chinese regulatory approval between January and May 2021 was 506, compared with 521 over the same period last year, according to data from Chinese mobile measurement and marketing company, Reyun. Although lower, it is not a drastic drop and indicates that game developers are becoming increasingly competitive and will have to adjust their strategies based on the users they target.
User acquisition is becoming more competitive
As a result of this competition, domestic ad revenue in China reached a record high of ¥58.83 billion ($8.36 billion) in the first quarter of 2021, according to Reyun data. The first quarter tends to drive significant revenue for Chinese tech giants such as Tencent and Netease, as that’s when the major Chinese public holidays of the Spring festival and the Chinese New Year occur and mobile users seemingly spend more time playing games.
Moreover, overall traffic rose 6.25% in China in the first quarter of 2021 from a year earlier, per Reyun data. Much of this increase was thanks to users in smaller cities and towns, which also saw the strongest growth in mobile app users so far this year. Users in these towns are characterized as price sensitive but they have a strong willingness to try new apps, and these preferences have helped apps, such as short-video platform Kuaishou, skyrocket in popularity over the past 12 months — potentially creating avenues to attract new players, particularly for F2P games. For example, data from Reyun shows users in China between 18 and 35 years old respond well to organically styled video ads, which now account for over 70% of all mobile game ad content in 2021 thus far.
Many developers in the West often overlook the potential of China’s emerging markets and rely too heavily on larger cities. These smaller markets are gaining importance and should be considered seriously for the growth opportunity.
Another new frontier for gaming advertisers will be social news platforms, as they target young professionals and middle-aged users who play MMORPGs and other RPG games more often. For instance, Toutiao, Bytedance’s second-largest app after Douyin, has been deemed extremely lucrative for advertisers. With over 220 million monthly active users, it is able to target users that may shy away from short-form video platforms and other social media.
There are to be undoubtedly more changes coming to the industry, and China will be no exception. Regulations and compliance issues will surely crop up and both developers and advertisers will need to adjust accordingly. All of that, however, should not deter Western publishers from shying away from testing this massive market.
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